With the digital revolution and subsequent advent of the world wide web, digitized information can now almost instantaneously be transmitted from one party to another. Consequently, several payment and money transfer mechanisms have evolved around the internet.
Typical payment methods require the payor or payee to exchange sensitive information. For example, some payment methods require the payor to give the payee sensitive information in order to complete the payment. Such methods include credit card transactions, debit card transactions, electronic check acceptance, and automatic bill payment. The sensitive information requested may include credit card number, debit card number, or bank account number. These transactions have many disadvantages. One such disadvantage is that the sensitive information disclosed by the payee could be used fraudulently by an unauthorized party. Another disadvantage requires the involvement of third-party entities that not only route electronic transaction data (for example using payment gateways) but also charge additional fees for their involvement. Additionally, in some cases, special equipment is required to receive payments by the payee. This includes credit card readers, debit card readers with specialized PIN-pads, check readers that can read MICR data, and the like. Additional special equipment and handling adds further to the total expense.
Electronic payment alternatives, such as wire transfer payments, require payors to obtain special information from the payees, including personal account numbers and routing numbers. Providing such information raises privacy concerns. Wire transfers and the exchange of sensitive information over the internet are prone to digital fraud wherein data is hijacked during transmission by a third-party. Many large companies do not permit wire transfers for security reasons.
Other methods of payment, such as automatic bill payment authorizations, require the payee to provide sensitive information to the payor. Though not very prevalent, this mechanism does not usually have any protection against fraud. The payees rely upon the payors to correctly make direct electronic deposits into their accounts.
Of special consideration is the payment mechanism evolved by internet transactions wherein a third party acts as a middleman in receiving sensitive information. An example of this payment method is PAYPAL. In this method, PAYPAL acts as an intermediary and accepts the payment from payor by requesting sensitive information from payor. PAYPAL then transfers monies to the payee by wire transfer or sending a check. PAYPAL also acts as an intermediary financial institution by accepting the payor funds and then transferring them to the payee. For its services, PAYPAL charges a fee.
The biggest disadvantage in the existing electronic methods in comparison to traditional paper checks is that the payor and payee need to be able to contact each other prior to making the transaction. A check, in sharp contrast, does not need an exchange of “sensitive” information between the parties except for the payee's name and address. Accordingly, checks are deemed more safe and hence, more frequently used, as compared to existing electronic mechanisms. Additionally, checks do not need special equipment or accreditations.
In addition to the differences mentioned above, different laws govern checks as compared to electronic payment mechanisms. Regular paper checks are governed by check laws, such as Regulation CC and Check21, while rules of the National Automated Clearing House Association (NACHA) govern electronic payment mechanisms.
The popularity of checks, even though decreasing, is illustrated by the fact that an estimated 42.5 billion checks were paid in the United States in 2000. This amounts to 59.5% of the total retail non-cash payments made in the United States. In terms of value, checks were equivalent to 39.3 trillion dollars, i.e. 84.4% of the total value of retail non-cash payments. It is estimated that a check is typically handled on average 19 times, increasing the opportunity for errors. Financial institutions spend $6 billion to $8 billion per year on check processing. Estimates of the cost savings attributed to check imaging and image exchange range from $1 billion to $2.1 billion.
The Check Clearing for the 21st Century Act (“Check 21 Act”), 12 U.S.C. §5001, was enacted on Oct. 28, 2003 and became law in the United States on Oct. 28, 2004. To facilitate check truncation and electronic check exchange, the Check 21 Act authorizes a new negotiable instrument called a “substitute check.” A substitute check is a paper reproduction of the original check that contains an image of the front and back of the original check and can be processed in the same manner as the original check. The Check 21 Act provides that a properly prepared substitute check is the legal equivalent of the original check for all purposes. The Check 21 Act does not require any bank to create substitute checks or to accept checks electronically. The Check 21 Act includes new warranties, an indemnity, and expedited recredit procedures that protect substitute check recipients.
The Check21 law created a new token called the substitute check. In its existing form, the substitute check is a digital image of the original check and is governed by the ANSI X.9100-140 standards. There are certain differences between the electronic check of this invention and a substitute check. These differences are the digital patterns and images and the fact that the entity receiving the check need not be a bank.
Previous attempts have been made to provide electronic payments or checks. U.S. Pat. No. 6,138,107 to Elgamal discloses a method and apparatus for providing electronic accounts over a public network. The patent provides the internet commerce community with an electronic money account, where a buyer connected to the internet can purchase electronic money from a payment gateway, deposit the electronic money in an electronic money account in the payment gateway, and use the electronic money account to purchase goods on the internet, based on an underlying secure courier system.
U.S. Publication No. US20020065786 to Martens et al. describes a method for depositing a check from home or office directly into a bank account by running it through a special scanner that generates an image of the check and digitally signs it. The systems uses encryptions imprinted on the check, a secret key, and a plurality of digital signatures based upon the concatenated branch number, account number and check number.
For a general reference on electronic payments, see for instance, Requirements for Network Payment: The NetCheque Perspective, University of Southern California, MacWorld, pp. 114 (November 1995) (an on-line checking system in which an account holder can send an electronic document that a recipient can deposit electronically into a bank account as a check, where the document contains the name of the payer, financial institution, payer's account number, payee's name, and amount of check, and which includes a digital signature of the payer and which may include a digital signature of a payee); see also NetCash: A Design for Practical Electronic Currency on the Internet, University of Southern California, Computing Machinery (1993) (a framework that supports realtime electronic payments with provision of anonymity over an unsecure network. The infrastructure is based on independently managed, distributed currency servers that provide a point of exchange between anonymous electronic currency and non-anonymous instruments such as electronic checks.)
U.S. Pat. No. 6,676,310 to Simpson et al. discloses a check writing system and method for facilitating the writing of checks. The system and method pertain to receiving data to be included in a check to be printed via a network, configuring the received data for printing on a check and facilitating printing of the check. U.S. Pat. No. 5,504,677 to Pollin discloses an automated payment system. The system generates a draft, payable to the creditor and drawn on the payor's checking account, pursuant to the payor's authorization. The draft is executed by the debt collector as authorized signatory for the payor and deposited into the payee's account to complete payment.
None of the methods and systems mentioned above describe an electronic check that is created and sent by a secure electronic transmission which can be printed as a paper check by the payee. Nor do the methods or systems teach of an electronic check that is created by a software program that makes a digital image of the check, securely encrypts the digital image and transmits the digital image to a payee.
Therefore, there is a need in the art for an electronic check that eliminates the uncertainties, delays and costs associated with the physical paper check transmission. There is a need to expedite the transmission of a physical paper check. There is also a need to reduce the costs involved in the transmission of physical paper checks. Traditional paper checks require the payor to print the check, seal the check in an envelope and mail it to the payee. There is also a need to limit the environmental impact of paper use by reducing the necessity of using envelopes.
There is a further need to reduce the risk that a paper check will be soiled, physically damaged, lost or intercepted, during transit and before being deposited with the bank. Additionally, physical paper transmissions sent through public delivery mechanisms are prone to delays and uncertainties arising due to carrier delays or errors. There is also a need for the ability to transmit a check to a payee to a remote location where it may be impossible to receive a paper check.
There is a further need in the art for an electronic check that is the functional equivalent of a paper check except that it includes the Payee's email address to the list of required information. An electronic mail address is not considered financially “sensitive” and a payee would be more likely to provide this information in comparison to other information such as credit card number, debit card number, bank account number, or check number.